CMOs Must Be a Part of Cost-Cutting Talks

Marketing Executives Can and Should Play a Major Role in Identifying and Reducing Unnecessary Organizational Costs

Virtually every day our key clients -- CMOs at major corporations -- are being asked to cut their budgets by the millions. For some, it is the third round with no end in sight. And, in most cases, the CMO is simply receiving a mandate to cut costs with little to no input.

Does that have to be the case?

Given common cost-cutting approaches, there is little for the CMO to add, and, as a result, they become recipients of edicts to cut expenses after the decision has already largely been made. Today, cost cutting mostly lives in the domain of the finance people, often with the assistance of large management consultancies.

Make no mistake: These approaches can be very effective at saving money and improving an organization's performance. At the same time, they all too often lack a critical perspective that, if considered, would lead to even better decisions.

All of these approaches emphasize a decision-making criteria based on supply-side capacity and productivity. While essential to making cost-cutting decisions, it ignores another equally critical perspective: demand-side growth, revenue and brand value. And here the CMO should be bringing a strong and clear perspective to bear and having a major voice in the companywide cost-cutting decision-making process.

Least painful cuts
The CMO's approach should be relatively straightforward in most cases. By conducting rapid quantitative research on purchase drivers and the relationship between the specific elements of the customer experience and purchase behavior, virtually anyone can easily distinguish which areas, if cut, will have the most negative impact on revenue and the brand, and which areas can be cut with the least impact. More sophisticated analysis with the right data can reveal the exact relationship with a high degree of accuracy between each dollar cut in costs and the specific impact on immediate revenue and longer-term brand economic value.

ABOUT THE AUTHORS

Tom Agan is an executive director-strategy at Interbrand in New York. He led branding and marketing projects for major companies such as IBM, GE, Harrah's, Boeing, Toyota, UBS and Procter & Gamble.

Iain Ellwood is head of consulting in London. He has played a key role building many global brands, including Mitsubishi, British Airways, Philips and Orange. He is the author of "The Essential Brand Book."

At a leading global luxury-hotel chain, for example, we identified specific elements of the customer experience that most drove purchase today and created future brand value. By focusing on one particular element we were able to not only increase the long-term value of the brand but also substantially decrease their originally planned capital expenditures. This involved reducing 100 to 150 physical items across the customer journey. It had the additional benefit of reducing the maintenance time per room by about 10%, allowing staff to be more efficient and thereby reducing costs. All of these reductions had either no impact or a positive impact on customer satisfaction. Customers want things simpler rather than more complicated. The net result was a cost reduction in capital and operating costs of $6.7 million per year.

Cost cutting too often runs the risk of damaging long-term brand value and short-term revenue by failing to properly consider its impact upon them. The CMO can and should play a major role in driving revenues, making the business more efficient and identifying and reducing unnecessary costs. Using strong data and clear logic, the CMO can support this perspective in a complex, emotional and increasingly urgent decision-making process.

Cost-cutting approaches

Cost cutting in most companies usually falls into one of seven approaches, used singularly or in some combination.

Establish a benchmark among competitors or comparable organizations, then reduce expenses as appropriate if exceeding the benchmark

Analyze the amount of work and productivity levels, then determine the optimal staffing level

Improve productivity by evaluating business processes and eliminating unnecessary steps and staffing

Outsource processes and functions to cheaper locations such as India

Compare actuals to budget, then establish across-the-board cost-reduction targets on a percentage basis

Consider the business strategy, then cut more in businesses that are slow growth and less important to the long-term financial success

Percentage of sales -- if sales fall then proportionately so does the marketing budget